Question

You find the following corporate bond quotes. To calculate the number of years until maturity, assume...

You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2016. The bonds have a par value of \$2,000.

 Company (Ticker) Coupon Maturity Last Price Last Yield EST \$ Vol (000’s) Xenon, Inc. (XIC) 7.100 Jan 15, 2037 94.353 ?? 57,379 Kenny Corp. (KCC) 7.290 Jan 15, 2036 ?? 5.48 48,958 Williams Co. (WICO) ?? Jan 15, 2043 94.905 7.18 43,819

What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Price            \$

What is the bond’s current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Current yield             %

Bond price is the present value of cash inflows from the bond, i.e., present of interest payments and present value of maturity value. Assuming semi - annual coupons, we have

Semi - annual Interest payment = \$2000 x 7.29% x 6/ 12 = \$72.9

Semi - annual YTM = 5.48%/ 2 = 2.74%, no. of Semi - annual periods to maturity = 20 x 2 = 40

Bond price = \$72.9 x PVIFA (2.74%, 40) + \$2000 x PVIF (2.74% , 40) = \$72.9 x 24.1178799879 + \$2000 x 0.33917008819 = \$2436.53

Current yield = (Interest payment / Bond price) x 100 = (\$145.8 / \$2436.53) x 100 = 5.99%